Petition for Writ of Certiorari — Douglas L. Swenson, Petitioner v. United States

Supreme Court briefFeb 12, 2018

Ask Donna

What actually matters in this document.

Text

NO. __________________

____________________________________________________

IN THE SUPREME COURT OF THE UNITED STATES

February 12, 2018

____________________________________________________

Douglas Swenson - Petitioner

vs.

United States of America - Respondent.

________________________________________________

On Petition for a Writ of Certiorari to

The United States Court of Appeals

For the Ninth Circuit

________________________________________________

PETITION FOR A WRIT OF CERTIORARI

________________________________________________

Angelo J. Calfo

CALFO EAKES & OSTROVSKY PLLC

CJA-Appointed Attorney for Petitioner

1301 Second Avenue, Suite 2800

Seattle, WA 98101

Telephone:

206-407-2200

Fax:

206-407-2224

Email:

angeloc@calfoeakes.com

ATTORNEY FOR PETITIONER

QUESTIONS PRESENTED

Can a defendant properly be convicted under a federal criminal statute

criminalizing willful misstatements or fraud—such as Section 10(b) of the Securities

Exchange Act—without a showing and finding of mens rea with respect to the

unlawfulness of his conduct?

Can a defendant properly be convicted of violating Section 10(b) of the

Securities Exchange Act without a showing and finding that the relevant statement,

omission, or conduct was material, based at least in part on its impact on the “total

mix” of information made available to investors?

Can a defendant properly be required to produce, in advance, the exhibits he

plans to use in cross-examining witnesses during the government’s case-in-chief, on

the theory that cross-examination actually constitutes part of the defendant’s own

“case-in-chief” under Fed. R. Crim. P. 16(b)?

Can a defendant be barred, under Fed. R. of Evid. 801(c), from introducing

evidence that constitutes verbal acts or bears on his state of mind, when that evidence

is routinely allowable from the government?

iii

PARTIES TO THE PROCEEDING

Petitioner, who was one of the appellants below, is the former owner of DBSI,

a real estate syndication company that collapsed in the wake of the financial crisis.

The three other appellants below—Mark Ellison, David Swenson, and Jeremy

Swenson—are former officers of that company. These three appellants have brought

a separate petition for a writ of certiorari. Petitioner Douglas Swenson raises three

of the same issues raised in the other Petitioners’ petition, which is referred to herein

as Petition for Writ of Certiorari on behalf of Mark Ellison (“Ellison Petition”).

Respondent, who was the appellee below, is the United States Government.

TABLE OF CONTENTS

QUESTIONS PRESENTED .......................................................................................... ii

PARTIES TO THE PROCEEDING ............................................................................. iii

OPINIONS BELOW ...................................................................................................... 1

JURISDICTION............................................................................................................. 1

RELEVANT CONSTITUTIONAL AND STATUTORY PROVISIONS ....................... 1

STATEMENT OF THE CASE ....................................................................................... 3

Factual background and trial ............................................................. 3

The jury verdicts ................................................................................. 8

The Ninth Circuit decision ................................................................. 9

REASONS FOR GRANTING THE PETITION .......................................................... 10

The Ninth Circuit Decision Endorsed an Erroneous Standard for

Materiality under the Securities Fraud Statute, In Conflict With

This Court’s Holdings and the Majority of Other Circuits. ...................... 10

The Ninth Circuit’s Decision Erroneously Adopted a Lower Mens Rea

Standard for Securities Fraud than Other Statutes Criminalizing

Willful Conduct, in Conflict With This Court’s Holdings. ........................ 14

The Ninth Circuit Erroneously Endorsed the District Court Order

Requiring Production of the Defense Cross-Examination Exhibits. ........ 17

Federal Rule of Evidence 801(c) Should Apply Equally to

Defendants and the Government—Defense Evidence that

Consists of Verbal Acts or Proves Mental State Should be Admitted. .... 21

The Ninth Circuit’s Decision Conflicts with Other Circuits

Applying Rule 801(c) to Evidence Offered by the Defense. ............. 22

Other Circuits Have Applied Rule 801(c) to Verbal Acts

Submitted by Defendants.͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘22

Other Circuits Have Applied Rule 801(c) to Statements

Demonstrating a Defendant’s State of Mind.͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘25

The Proper Interpretation of Rule 801(c) When Defendants

Offer Non-Hearsay Evidence is an Issue of Great Importance

in This and Many Criminal Cases. ................................................... 27

CONCLUSION............................................................................................................. 30

APPENDIX .................................................................................................................. 1a

Appendix A: United States Court of Appeals for the Ninth Circuit Opinion,

United States v. Ellison, 704 F. App’x 616 ....................................................... 1a

Appendix B: United States District Court for the District of Idaho

Memorandum Decision and Order, February 10, 2014 ................................. 29a

Appendix C: Order denying petition for rehearing en banc,

United States Court of Appeals for the Ninth Circuit,

October 13, 2017, United States v. Ellison..................................................... 40a

Appendix D: Order granting motion to stay mandate, October 23, 2017

United States Court of Appeals for the Ninth Circuit,

United States v. Ellison .................................................................................. 42a

Appendix E: Order granting motion to extend stay of mandate, January 5, 2018

United States Court of Appeals for the Ninth Circuit,

United States v. Ellison .................................................................................. 44a

TABLE OF AUTHORITIES

Cases

Basic Inc. v. Levinson,

485 U.S. 224 (1988) ............................................................................................. 8, 11

Bryan v. United States,

524 U.S. 184 (1998) ..................................................................................... 15, 16, 17

Emich Motors Corp. v. General Motors Corp.,

181 F.2d 70 (7th Cir. 1950) ..................................................................................... 24

Lee v. Illinois,

476 U.S. 530 (1986) ................................................................................................. 20

Oregon v. Elstad,

470 U.S. 298 (1985) ................................................................................................. 18

Ratzlaf v. United States,

510 U.S. 135 (1994) ................................................................................................. 15

Safeco Insurance Co. of America v. Burr,

551 U.S. 47 (2007) ................................................................................................... 16

TSC Industries, Inc. v. Northway, Inc.,

426 U.S. 438 (1976) ..................................................................................... 10, 11, 13

United States v. Ajoku,

584 F. App’x 824 (9th Cir. 2014) ............................................................................. 16

United States v. Bank of New England,

821 F.2d 844 (1st Cir. 1987) .................................................................................... 17

United States v. Benton,

852 F.2d 1456 (6th Cir. 1988) ................................................................................. 23

United States v. Boyd,

566 F.2d 929 (5th Cir. 1978) ................................................................................... 22

vii

United States v. Cantu,

876 F.2d 1134 (5th Cir. 1989) ................................................................................. 26

United States v. Cerro,

775 F.2d 908 (7th Cir. 1985) ............................................................................. 19, 21

United States v. Childs,

539 F.3d 552 (6th Cir. 2008) ................................................................................... 22

United States v. Clarke,

24 F.3d 257 (D.C. Cir. 1994).................................................................................... 22

United States v. Faulhaber,

929 F.2d 16 (1st Cir. 1991) ...................................................................................... 17

United States v. Faulkner,

439 F.3d 1221 (10th Cir. 2006) ............................................................................... 22

United States v. Gomez,

772 F. Supp. 2d 1185 (C.D. Cal. 2011) .................................................................... 25

United States v. Harris,

733 F.2d 994 (2d Cir. 1984) ..................................................................................... 26

United States v. Harry,

No. CR 10-1915 JB, 2014 WL 6065705 (D.N.M. Oct. 14, 2014)............................. 19

United States v. Hayes,

369 F.3d 564 (D.C. Cir. 2004).................................................................................. 25

United States v. Ibisevic,

675 F.3d 342 (4th Cir. 2012) ................................................................................... 27

United States v. Jackson,

780 F.2d 1305 (7th Cir. 1986) ................................................................................. 24

United States v. Leake,

642 F.2d 715 (4th Cir. 1981) ................................................................................... 26

viii

United States v. Lim,

984 F.2d 331 (9th Cir. 1993) ................................................................................... 22

United States v. Lothian,

976 F.2d 1257 (9th Cir. 1992) ................................................................................. 17

United States v. Martorano,

561 F.2d 406 (1st Cir. 1977) .................................................................................... 22

United States v. Mateos,

623 F.3d 1350 (11th Cir. 2010) ......................................................................... 23, 25

United States v. Moore,

612 F.3d 698 (D.C. Cir. 2010).................................................................................. 17

United States v. Murphy,

193 F.3d 1 (1st Cir. 1999) ........................................................................................ 23

United States v. O’Hagan,

521 U.S. 642 (1997) ................................................................................................. 15

United States v. Ortega,

203 F.3d 675 (9th Cir. 2000) ................................................................................... 24

United States v. Parry,

649 F.2d 292 (5th Cir. Unit B June 1981) .............................................................. 27

United States v. Price,

623 F.2d 587 (9th Cir. 1980) ................................................................................... 17

United States v. Puzzo,

928 F.2d 1356 (2d Cir. 1991) ................................................................................... 26

United States v. Stratton,

779 F.2d 820 (2d Cir. 1985) ..................................................................................... 22

United States v. Tarallo,

380 F.3d 1174 (9th Cir. 2004) ................................................................................. 16

United States v. Tuchow,

768 F.2d 855 (7th Cir. 1985) ................................................................................... 22

Walder v. United States,

347 U.S. 62 (1954) ................................................................................................... 19

Williams v. Florida,

399 U.S. 78 (1970) ................................................................................................... 19

Statutes and Regulations

15 U.S.C. 78ff ................................................................................................................. 2

15 U.S.C. 78j .................................................................................................................. 2

17 C.F.R. § 230.500 .................................................................................................. 3, 12

18 U.S.C. § 1001 ........................................................................................................... 16

18 U.S.C. § 1035 ........................................................................................................... 16

28 U.S.C. 1254 ............................................................................................................... 1

Other Authorities

Christopher B. Mueller,

Post-Modern Hearsay Reform: The Importance of Complexity,

76 MINN. L. REV. 367 (1992) ..................................................................................... 28

Gordon Van Kessel,

Hearsay Hazards in the American Criminal Trial: An Adversary-Oriented

Approach, 49 HASTINGS L.J. 477 (1998)................................................................... 28

Jared M. Kelson,

Government Admissions and Federal Rule of Evidence 801(d)(2),

103 VA. L. REV. 355 (2017) ....................................................................................... 28

Randolph N. Jonakait,

Biased Evidence Rules: A Framework for Judicial Analysis and Reform,

UTAH L. REV. 67 (1992) ............................................................................................. 28

Steven R. Morrison,

Requiring Proof of Conspiratorial Dangerousness,

88 TUL. L. REV. 483 (2014) ....................................................................................... 28

Rules

Fed. R. Crim. P. 16............................................................................................... passim

Fed. R. Evid. 801(c) .............................................................................................. passim

Fed. R. Evid. 801(d)(2)(E) ............................................................................................ 23

Fed. R. Evid. 803(3) ..................................................................................................... 26

S. Ct. R. 30.1 .................................................................................................................. 1

Constitutional Provisions

The Sixth Amendment to the United States Constitution .......................................... 1

OPINIONS BELOW

The decision of the United States Court of Appeals for the Ninth Circuit is in

the Federal Appendix at 704 F. App’x 616, and is reprinted at 1a. The order denying

rehearing en banc is reprinted at 40a. The orders staying the mandate pending

resolution of this petition are reprinted at 42a and 44a. The district court opinion

regarding Rule 16 is reported at 298 F.R.D. 474 and reprinted at 29a.

JURISDICTION

The Ninth Circuit issued its decision on August 15, 2017. Rehearing en banc

was denied on October 13, 2017. Justice Kennedy granted an extension of time to file

this petition until Saturday, February 10, 2018. This petition is being filed Monday,

February 12, 2018, under the weekend rule.

S. Ct. R. 30.1.

This Court has

jurisdiction under 28 U.S.C. 1254(1).

RELEVANT CONSTITUTIONAL AND STATUTORY PROVISIONS

The Sixth Amendment to the United States Constitution states, in relevant

part:

In all criminal prosecutions, the accused shall enjoy the right . . . to be

confronted with the witnesses against him . . . .

Section 10(b) of the Securities Exchange Act, 15 U.S.C 78j, provides in

relevant part:

It shall be unlawful for any person, directly or indirectly, by the use of

any means or instrumentality of interstate commerce or of the mails, or

of any facility of any national securities exchange—

…

(b) To use or employ, in connection with the purchase or sale of any

security registered on a national securities exchange or any security not

so registered, or any securities-based swap agreement, any

manipulative or deceptive device or contrivance in contravention of such

rules and regulations as the Commission may prescribe as necessary or

appropriate in the public interest or for the protection of investors.

The provision providing for penalties for the violation of 15 U.S.C. 78j, found

at 15 U.S.C. 78ff, provides:

Any person who willfully violates any provision of this chapter, . . . or

any rule or regulation thereunder the violation of which is made

unlawful or the observance of which is required under the terms of this

chapter, or any person who willfully and knowingly makes, or causes to

be made, any statement in any application, report, or document required

to be filed under this chapter or any rule or regulation thereunder or

any undertaking contained in a registration statement as provided in

subsection (d) of section 78o of this title, or by any self-regulatory

organization in connection with an application for membership or

participation therein or to become associated with a member thereof

which statement was false or misleading with respect to any material

fact, shall upon conviction be fined not more than $5,000,000, or

imprisoned not more than 20 years, or both, except that when such

person is a person other than a natural person, a fine not exceeding

$25,000,000 may be imposed; but no person shall be subject to

imprisonment under this section for the violation of any rule or

regulation if he proves that he had no knowledge of such rule or

regulation.

STATEMENT OF THE CASE

Factual background and trial

The charges in this case arose from Petitioners’ work for DBSI, a successful

real estate syndication company owned almost entirely by Petitioner Douglas

Swenson, which profited for years through the purchase and resale of commercial real

estate.

The company failed when an essential element of its business—credit

financing—froze in the wake of the Lehman Brothers crash and the onset of the Great

Recession in September 2008. Because of the impact of the financial crisis, the

company was forced to shut down sales and, like so many other companies, eventually

file for bankruptcy. See AER 4293.1 In the wake of these financial events, federal

prosecutors understandably sought to step up their efforts to investigate and

prosecute potential fraud. But in sifting through the wreckage, federal prosecutors

ran the risk of overreaching. That is exactly what happened here.

In 2013, the government indicted Douglas Swenson, the CEO of DBSI, Mark

Ellison, its General Counsel, and David and Jeremy Swenson, two of Douglas

Swenson’s sons who worked at the company, on 89 counts of conspiracy, money

laundering, wire fraud, and securities fraud.

The prosecution’s case rested on speculative inferences of fraud drawn from

ordinary securities transactions between DBSI and the accredited investors to whom

it sold securities. DBSI sold securities under SEC Regulation D, 17 C.F.R. § 230.500

1 AER refers to the Appellants’ Excerpts of the Record, while JER means the Joint Excerpts of the

Record, both filed with the Ninth Circuit.

et seq., meaning they were sold only through licensed securities brokers, they were

sold only to accredited investors, and they were sold under a different set of rules

than those which govern the sale of public securities. The brokers were legally

responsible for investigating DBSI’s offerings and advising their clients on the risks

and benefits of DBSI securities. JER 1486, 1714–15, 1873–74, 7212. Although not

required to provide any financial information to investors, DBSI prepared extensive

private placement memoranda (“PPMs”), which included copies of its financial

statements, for each property offered for syndication and for any other offerings it

made. JER 1475, 1608, 1871, 2945; AER 2527–729. Also, unlike in a public offering

where providing information to just some prospective investors is prohibited, as a

Regulation D offeror, DBSI made itself available to answer any questions and

provided extensive additional information in response to broker questions. AER 377;

JER 2572, 2579, 2930, 7274, 7315, 7317.

The crux of the government’s case was that the PPMs contained material

misrepresentations and omissions. But the government’s evidence was tenuous. For

example, key government witness Matt Duckett, the Vice President of Finance at

DBSI, who was responsible for preparing the financial statements that accompanied

the PPMs, testified that all the numbers on the financial statements were accurate,

tied to the properly kept books and records of DBSI, and did not contain any false

representations. JER 5388–89. Mr. Duckett did testify to one specific concern he had

about the presentation of the company’s financials, but he acknowledged that a

“sophisticated reader”—the only type of reader to whom DBSI could sell—could

understand the financial picture of the company. JER 5390–91.

To establish materiality, the government relied almost entirely on testimony

from investors that demonstrated the investors did not understand the disclosures in

DBSI’s PPMs. For example, the prosecution elicited testimony that DBSI investors

were unaware that DBSI had substantial investments in technology companies, and

that they would not have purchased the securities had they known. See JER 3481–

82, 5705, 5818–20. But the undisputed evidence was that DBSI had disclosed that

information in its PPMs and to third-party due-diligence professionals, whose reports

were available to investors. AER 3946, 3948, 4577–82, 5640–41; JER 5875-76.

The government’s mens rea evidence was similarly tenuous. For example, Mr.

Duckett testified that he did not believe he was doing anything illegal, did not intend

to deceive anyone in preparing the financial statements, and did not believe anyone

at DBSI intended to deceive or cheat investors.

JER 5389, 5433.

Moreover, a

contemporaneously written email from DBSI’s general counsel, Mr. Ellison, (“Ellison

email”) showed that company lawyers were directed to make complete disclosures.

The government’s theory was that Petitioners hid DBSI’s investment in technology

companies from investors, but the January 19, 2008 email directed more robust

disclosures in the 2008 Notes Corporation PPM about the investments:

I reviewed the sections of the draft PPM that addressed the use of funds

for the Stellar companies. I believe we need more disclosure about those

companies. Doug has also finished his review and reached the same

conclusion. As I spoke to Doug about it over the weekend we thought that

it might be easiest to add an Exhibit to the PPM that describes each

Stellar company and includes some financial information. Doug is going

to work on the financial information. Let’s talk Monday about the other

information for the Stellar companies.

DLSER 36 (unredacted, as proposed) (emphasis added to indicate portions redacted

by the district court when the email was admitted); see also DLSER 32–36; AER 5468;

JER 6322–24.2 Douglas Swenson sought to admit this email as direct evidence

negating any intent to deceive investors and showing steps he and DBSI’s chief

counsel made toward increasing disclosures.

The importance of this email cannot be overstated. It was written at the time

the government alleged Petitioners knew DBSI was failing and therefore decided to

withhold material information from investors. The email shows Douglas Swenson’s

and Mr. Ellison’s contrary direction to the company lawyers to make complete

disclosures to potential investors about the technology companies and their finances.

And the district court’s redactions hid Douglas Swenson’s actions: not only did Mr.

Swenson recognize the need for additional disclosure, he spoke with his chief counsel,

Mr. Ellison, who in turn communicated with other DBSI attorneys regarding steps

towards implementing these additional disclosures. Finally, the email reflects Mr.

Ellison’s and Douglas Swenson’s careful approach to ensuring the accuracy and

completeness of the PPMs and their collaboration to ensure that appropriate

information was shared with investors.

It is entirely inconsistent with the

2 DLSER refers to Douglas Swenson’s Supplemental Excerpts of the Record, filed with the Ninth

Circuit.

government’s theory that Douglas Swenson ran DBSI as a fraudulent enterprise and

intended to deceive investors.

But the district court excluded the underlined portions, erroneously ruling

they were inadmissible hearsay, and the redacted exhibit was admitted into evidence

with the limiting instruction that the jury could consider the unredacted portions

only as to Mr. Ellison’s state of mind. JER 6371. This severely hampered Douglas

Swenson’s ability to rebut the government’s intent evidence, all of which was

circumstantial. And it meant that the jury never heard that Douglas Swenson had

taken substantial steps to implement more disclosures in the 2008 PPM notes. Had

the jury reviewed this key mens rea evidence, it is highly likely that Douglas Swenson

would have been acquitted on all counts.

In addition to excluding critical evidence of lack of intent to deceive investors,

the district court erroneously hampered Petitioners’ right to effectively cross-examine

government witnesses. In a virtually unprecedented ruling, the district court ruled

that the reciprocal discovery obligations of Federal Rule of Criminal Procedure 16

require criminal defendants to disclose their cross-examination exhibits to the

government in advance of questioning.3 Pet. 29a–39a. The district court reached this

conclusion by reasoning that the defense’s “case-in-chief” begins when the defense

starts cross-examination of witnesses during the government’s case-in-chief and that,

as a result, the defense’s reciprocal discovery must include production of cross

3 Rule 16 requires a defendant who requests disclosure from the government to disclose “books, papers,

documents, data, photographs, tangible objects, buildings or places, or copies or portions of any of these

items if: (i) the item is within the defendant’s possession, custody, or control; and (ii) the defendant

intends to use the item in the defendant’s case-in-chief at trial.” FED. R. CRIM. P. 16(b)(1)(A).

examination exhibits. Id. The district court purported to exclude “impeachment”

evidence from its order, but then compounded its error by narrowly defining

“impeachment” to include only statements made by a witness that are inconsistent

with his or her trial testimony. JER 903, 1910, 4416–17. As a result, Douglas

Swenson was required to disclose nearly all his intended cross-examination

exhibits—effectively previewing his cross-examination strategy—or risk exclusion of

those exhibits. This ruling impacted the outcome of the case.

Finally, the district court exacerbated these erroneous rulings by failing to

accurately inform the jury on two key issues: materiality and willfulness. In a case

involving Regulation D offerings marketed only to licensed broker–dealers who

represented accredited investors, it was essential that jurors consider the context in

which false or misleading statements were allegedly made. But, contrary to this

Court’s clear precedent, the district court refused to instruct the jury to consider the

“total mix” of information made available to investors and broker–dealers when

considering whether particular statements or omissions were material. Contra Basic

Inc. v. Levinson, 485 U.S. 224, 249 (1988). The instructions also erroneously defined

willfulness, allowing the jury to convict Douglas Swenson of securities fraud by

engaging in a business practice that he did not know was unlawful.

The jury verdicts

That the jury returned a mixed verdict highlights the closeness of this case.

The jury acquitted each Petitioner of conspiracy to commit securities fraud or wire

fraud and yet, inconsistently, jointly convicted Petitioners of securities fraud on the

theory that they had “engaged in any act, practice or course of business that operates

or would operate as a fraud or deceit upon any person.” The jury acquitted Petitioners

Mark Ellison, Jeremy Swenson, and David Swenson of all wire fraud counts and of

all securities fraud charges based on a scheme to defraud or to make false or

misleading statements. The jury acquitted Douglas Swenson of engaging in any

“scheme to defraud” under the wire fraud statute. However, it convicted him of a

“scheme to defraud” under the securities fraud statute and a scheme to make false or

misleading statements under the securities fraud statute. Finally, the jury acquitted

Douglas Swenson, Jeremey Swenson, and David Swenson of conspiracy to launder

funds the government claimed were the fruits of DBSI’s fraudulent scheme.

The Ninth Circuit decision

Douglas Swenson challenged his conviction and sentence on appeal. The Ninth

Circuit held that the “total mix” instruction on materiality was unnecessary because

“by referring to a reasonable investor, the instruction adequately communicated that

the jury should consider relevant circumstances in evaluating materiality.” Pet. 5a.

The Ninth Circuit also held that “willful” violation of the Securities Act may be proven

without any showing that a defendant knew his actions were unlawful. Pet. 8a. The

Ninth Circuit upheld the district court’s Rule 16 ruling, agreeing that a defendant’s

“case-in-chief” begins during cross-examination of the government’s witnesses. Pet.

17a–19a. And the court summarily rejected Douglas Swenson’s argument that the

exculpatory Ellison email was erroneously excluded. Pet. 19a–20a.

The Ninth Circuit denied rehearing en banc. Pet. 40a.

REASONS FOR GRANTING THE PETITION

The Ninth Circuit Decision Endorsed an Erroneous Standard for

Materiality under the Securities Fraud Statute, In Conflict With This

Court’s Holdings and the Majority of Other Circuits.

The district court’s jury instruction on securities fraud misstated the

materiality standard set forth by this Court in TSC Industries, Inc. v. Northway, Inc.,

426 U.S. 438 (1976). As this Court explained in TSC Industries, defining materiality

involves a careful balancing between “ensur[ing] disclosures” sufficient “to enable the

shareholders to make an informed choice” on the one hand, and ensuring the bar is

not so low as to subject management “to liability for insignificant omissions or

misstatements” or to encourage management “simply to bury the shareholders in an

avalanche of trivial information” to avoid liability. Id. at 448–49. By way of balancing

these extremes, this Court adopted a nuanced inquiry that requires an evaluation of

the misstatement or omission in light of the total context of all available information:

What the standard does contemplate is a showing of a substantial

likelihood that, under all the circumstances, the omitted fact would have

assumed actual significance in the deliberations of the reasonable

shareholder. Put another way, there must be a substantial likelihood

that the disclosure of the omitted fact would have been viewed by the

reasonable investor as having significantly altered the “total mix” of

information made available.

Id. at 449 (emphasis added); see also Basic Inc. v. Levinson, 485 U.S. 224, 249 (1988)

(“We specifically adopt, for the § 10(b) and Rule 10b–5 context, the standard of

materiality set forth in TSC Industries, Inc.”). This Court’s emphasis on context was

central to its holding in TSC Industries, and should have been instructed in this case.

Petitioners proposed the following materiality instruction:

A false statement or omission is material if it significantly alters the

total mix of information available, and was of such importance that it

could reasonably be expected to cause or to induce a person to invest or

not to invest.

AER 639; JER 8064–67. But the district court declined to give the jury a “total mix”

instruction and instead gave the Ninth Circuit’s model instruction, which strips away

this Court’s emphasis on context:

A fact is material if there is a substantial likelihood that a reasonable

investor would consider it important in making the decision to purchase

securities.

Instruction No. 30, AER 360; Ninth Circuit Model Jury Instructions (Criminal), § 9.9.

The error in the instruction is twofold. First, it does not require the jurors to consider

the “total mix” of information or to consider “all of the circumstances,” but instead

instructs them to focus on the allegedly omitted information in a vacuum. Second, it

does not direct jurors to consider the information “made available” to the investors,

but instead allows them to focus solely on the information the investors actually

considered and to ignore the available information they did not. Taken together,

these errors lowered the prosecution’s burden as to a necessary element of the offense

of securities fraud.4

The Ninth Circuit’s instruction presents a very real danger that defendants

can be convicted for securities fraud where an investor simply fails to consider or

Petitioners proposed the “total mix” language in the context of the securities fraud instruction.

AER 639. However, had it been given, that critical context would have impacted the jury verdict on

wire fraud. The wire fraud counts were based on the same alleged misrepresentations and omissions

as the securities fraud counts. No rational trier of fact could find that Douglas Swenson knowingly

stated or omitted facts that were “capable of influencing” or “had a tendency to influence” an investor

to part with his or her money for purposes of the wire fraud statute, AER 368, when considered in the

proper context of all the information made available.

understand available information. This danger looms particularly large with respect

to offerors of private Regulation D securities, whose disclosures are not broadly

available nor as routinized as public offerors, but who instead are allowed to provide

information through a variety of channels, including responses to questions from

broker–dealers and third-party due-diligence firms.5

Indeed, in this case, the

prosecution focused its witness presentation and closing argument on the fact that

particular investors were unaware of certain information, even though that

information was indisputably contained in DBSI’s PPMs or otherwise made available

by DBSI to the broker–dealer community. See JER 8209–10. As a result, Douglas

Swenson was convicted for failing to disclose information he had, in fact, “made

available.”

In upholding the jury instruction in this case, the Ninth Circuit held that “a

reasonable investor would consider all of the circumstances in determining whether

a false statement or omitted fact was significant” and that, therefore, “[b]y referring

to a reasonable investor, the [district court’s] instruction adequately communicated

that the jury should consider relevant circumstances in evaluating materiality.” Pet.

5a. The Ninth Circuit’s conclusion that a “reasonable investor” is necessarily one who

considers all the circumstances cannot be reconciled with this Court’s reasoning in

TSC Industries. In TSC Industries, the Court began its analysis by noting that “[t]he

5 Unlike the rules governing public securities, which require all relevant information be included in

the offering prospectus and do not permit investors to receive or solicit additional information under

penalty of insider trading, 17 C.F.R. § 230.100 et seq., Regulation D accredited-only offerings do not

require any offering documents and are premised on the expectation that the accredited, sophisticated

investors will gather whatever information they deem necessary to understand the offering and, to

such end, the offeror will truthfully answer their questions. 17 C.F.R. § 230.500 et seq.

question of materiality, it is universally agreed, is an objective one, involving the

significance of an omitted or misrepresented fact to a reasonable investor.” TSC

Indus., Inc., 426 U.S. at 445. Were the Ninth Circuit correct that a reasonable

investor was necessarily one who considered all the information available, this Court

would have stopped there. But unlike the Ninth Circuit, it did not. Instead, in

enumerating the appropriate standard, this Court directed lower courts to consider a

“reasonable investor” while also considering “all the circumstances” and the “total

mix” of information. Id. at 445–49. The clear implication of the Court’s language is

that a “reasonable investor” is not ipso facto an investor who has considered all the

available information.

Tellingly, when this Court has applied the test itself, it has framed its analysis

explicitly in terms of considering all the information made available to investors. See,

e.g., id. at 452 (“We do not agree that the omission of these facts, when viewed against

the disclosures contained in the proxy statement, warrants the entry of summary

judgment . . . .” (emphasis added)); id. at 452–53 (“In view of these disclosures, we

certainly cannot say that the additional facts . . . .” (emphasis added)); id. at 453 (“The

net contribution of including the contents of the SEC filings accompanied by such

disclaimers is not of such obvious significance, in view of the other facts contained in

the proxy statement, that their exclusion renders the statement materially misleading

as a matter of law.” (emphasis added)).

Following the apparent intent of this Court, a clear majority of circuits treat

this Court’s “total mix” standard as an integral part of the materiality test. See

Ellison Petition, Reasons for Granting the Petition, Section I.3–.4.

The Ninth

Circuit’s pattern jury instruction—which the district court used in this case—is

inconsistent with the law as applied in the majority of the Ninth Circuit’s sister

circuits. And, more fundamentally, it is inconsistent with this Court’s precedent. By

failing to treat the “total mix” test as integral to the materiality standard, the Ninth

Circuit misapplied this Court’s clear precedent and permitted the jury to convict

Douglas Swenson under a watered-down materiality standard. Review by this Court

is necessary to correct this error and bring the Ninth Circuit into compliance with its

sister circuits and this Court’s precedent.

The Ninth Circuit’s Decision Erroneously Adopted a Lower Mens Rea

Standard for Securities Fraud than Other Statutes Criminalizing

Willful Conduct, in Conflict With This Court’s Holdings.

The Ninth Circuit plainly misapplied this Court’s precedent in approving a

jury instruction that directed the jury to convict Petitioners of willfully committing

securities fraud even if Petitioners did not know their conduct was unlawful. In so

holding, the Ninth Circuit explicitly singled out securities fraud for a lower mens rea

requirement than other federal statutes criminalizing willful conduct. This Court

should intervene to correct this significant and wholly unreasonable decision on a

critical federal issue.

“To establish a criminal violation of Rule 10b–5, the Government must prove

that a person ‘willfully’ violated the provision.” United States v. O’Hagan, 521 U.S.

642, 665 (1997) (citing 15 U.S.C. § 78ff(a)). “[I]n order to establish a ‘willful’ violation

of a statute,” in a criminal case, “the Government must prove that the defendant

acted with knowledge that his conduct was unlawful.” Bryan v. United States, 524

U.S. 184, 191–92 (1998) (quoting Ratzlaf v. United States, 510 U.S. 135, 137 (1994)).

While this does not require the government to prove in all cases that the defendant

was aware of the particular statute he violated, it does require the government to

prove the defendant knew his conduct violated some law.Bryan, 524 U.S. at 194–96.

The district court flatly ignored this rule, however. Instead, it gave the jury

the following definition of the word “willfully”:

“Willfully” means intentionally undertaking an act, making an untrue

statement, or failing to disclose for the wrongful purpose of defrauding

or deceiving someone. Acting willfully does not require that the

defendant know that the conduct was unlawful . . . .

AER 359 (emphasis added). As a result, the jury convicted Douglas Swenson of willful

securities fraud despite a total lack of evidence that he believed he was acting in

anything but good faith.

In upholding the district court’s jury instruction, the Ninth Circuit relied on a

2004 Ninth Circuit opinion called United States v. Tarallo, and concluded that “for

securities fraud[,] ‘willfully’ . . . means intentionally undertaking an act that one

knows to be wrongful,” and “does not require that the actor know specifically that the

conduct was unlawful.” Pet. 8a (emphasis in original) (quoting United States v.

Tarallo, 380 F.3d 1174, 1188 (9th Cir. 2004), amended, 413 F.3d 928 (9th Cir. 2005)).

Perhaps recognizing that Tarallo was at odds with Bryan and other decisions of this

Court, the Ninth Circuit added that “[t]he definition of ‘willfully’ that typically applies

to other crimes does not apply to securities fraud.” Pet. 8a (citing Tarallo, 380 F.3d

at 1186–88).

After Tarallo, however, this Court clarified that even if a lesser standard of

“willfulness” may be appropriate in civil cases, “[i]t is different in the criminal law”:

When the term “willful” or “willfully” has been used in a criminal

statute, we have regularly read the modifier as limiting liability to

knowing violations. . . . Thus we have consistently held that a defendant

cannot harbor such criminal intent unless he “acted with knowledge

that his conduct was unlawful.”

Safeco Ins. Co. of Am. v. Burr, 551 U.S. 47, 57 n.9 (2007) (quoting Bryan, 524 U.S. at

192). Thus, to the extent Tarallo ever represented good law—a doubtful proposition

in light of Bryan—its holding cannot square with this Court’s subsequent statements

in Safeco.

Following Safeco, the Solicitor General in United States v. Ajoku conceded that

the willfulness requirement of 18 U.S.C. §§ 1001 and 1035 requires proof that the

defendant knew his conduct was unlawful. United States v. Ajoku, 584 F. App’x 824

(9th Cir. 2014); AER 213–37. As the Solicitor General wrote, “the general criminallaw interpretation of ‘willfully’ articulated in Bryan should govern in the context of

Sections 1001 and 1035.” AER 226 (emphasis added); see also United States v. Moore,

612 F.3d 698, 703–04 (D.C. Cir. 2010) (Kavanaugh, J., concurring) (“In Bryan, the

Supreme Court summarized the rule quite clearly: ‘[I]n order to establish a willful

violation of a statute, the Government must prove that the defendant acted with

knowledge that his conduct was unlawful.’” (quoting Bryan, 524 U.S. at 191–92)).

There is simply no reasoned basis for applying a lower mens rea standard to

securities fraud than other criminal offenses penalizing “willful” conduct. Even so,

the Ninth Circuit and two of its sister circuits, the Second and the Eighth, have

anomalously singled out securities fraud for a lower mens rea requirement. See

Ellison Petition, Reasons for Granting the Petition, Section II.2. The First Circuit,

by contrast, has long applied a standard consistent with this Court’s jurisprudence.

See United States v. Bank of New England, 821 F.2d 844, 855 (1st Cir. 1987)

(“Willfully means voluntarily, intentionally, and with a specific intent to disregard,

to disobey the law, with a bad purpose to violate the law.”); United States v.

Faulhaber, 929 F.2d 16, 19 (1st Cir. 1991) (applying Bank of New England definition

to securities fraud case). This Court should grant review to correct the Ninth Circuit’s

error.6

The Ninth Circuit Erroneously Endorsed the District Court Order

Requiring Production of the Defense Cross-Examination Exhibits.

The district court erroneously held that the reciprocal discovery obligations of

Federal Rule of Criminal Procedure 16 require criminal defendants to disclose their

cross-examination exhibits, including impeachment evidence, to the government in

advance of questioning.

The district court reached this nearly unprecedented

conclusion by reasoning that the defense’s “case-in-chief” begins when the defense

starts cross-examination of witnesses during the government’s case-in-chief and that,

as a result, the defense’s reciprocal discovery must include production of cross-

6 The Ninth Circuit’s error reached beyond the securities fraud counts.

As with some other circuits,

the Ninth Circuit has stated that willfulness is an element of wire fraud. See United States v. Lothian,

976 F.2d 1257, 1267 (9th Cir. 1992) (“To sustain a conviction under the mail and wire fraud statutes,

there must be sufficient evidence to show that the defendant ‘willful[ly] participate[d] in a scheme

with knowledge of its fraudulent nature and with intent that these illicit objectives be achieved.’”

(quoting United States v. Price, 623 F.2d 587, 591 (9th Cir. 1980))). Thus, in the event Douglas

Swenson’s case is remanded to correct the district court’s erroneous willfulness instruction, he should

likewise be entitled to a new trial on his wire fraud convictions.

examination exhibits. Pet. 31a–34a. The district court further eroded the protections

inherent in Rule 16—and the Sixth Amendment right to effective crossexamination—by only exempting from its order a narrow category of impeachment

evidence, namely, “prior inconsistent statements,” and by requiring the defense to

produce back to the government relevant documents it identified in its review of the

government’s discovery. JER 903. In other words, as interpreted by the district court

below, Rule 16 requires criminal defendants to sift through the government’s

voluminous discovery, identify those documents it intends to use with government

witnesses (other than prior inconsistent statements), and produce those documents

before the government witnesses testify.

That reasoning—now adopted by the Ninth Circuit—is squarely in conflict

with instruction from this Court regarding the meaning of “case in chief.” See, e.g.,

Oregon v. Elstad, 470 U.S. 298, 307 (1985) (distinguishing between use of improperly

obtained confessions during prosecution’s “case in chief” as opposed to use in crossexamination during defendant’s case); Walder v. United States, 347 U.S. 62, 66 (1954)

(discussing case in which government failed to introduce certain “evidence in its case

in chief” but “tried to smuggle it in on cross-examination”).

This settled

understanding that the defendant’s case-in-chief begins only after the government

rests its case upholds the bedrock constitutional principle that the government alone

carries the burden of proof. Rule 16 preserves this Constitutional framework by not

obligating a defendant to put on a case-in-chief. See United States v. Harry, No. CR

10-1915 JB, 2014 WL 6065705, at *6 (D.N.M. Oct. 14, 2014). As Justice Black

famously explained, “[t]hroughout the process the defendant has a fundamental right

to remain silent, in effect challenging the States at every point to: ‘Prove it!’”

Williams v. Florida, 399 U.S. 78, 112 (1970) (Black, J., dissenting). The Ninth

Circuit’s decision upsets this well-settled, Constitutional balance.

Moreover, given the extremely narrow exception for impeachment only in the

form of prior inconsistent statements, it also undermines Sixth Amendment

protections inherent in Rule 16. See United States v. Cerro, 775 F.2d 908, 915 (7th

Cir. 1985) (discussing that to preserve the Sixth Amendment right to effective crossexamination, impeachment evidence excluded from pretrial disclosure must be

construed broadly to include not only contradictory statements, but any evidence the

defendant “plans to use . . . to buttress his cross-examination”).

The prejudice on Douglas Swenson’s ability to effectively cross-examine was

profound. By requiring disclosure of all rebuttal and impeachment evidence other

than that narrow category of prior inconsistent statements, the district court

effectively required the defense to provide the government with an outline of its crossexamination ahead of time. See id. (holding that cross-examination is ineffective if

defendant must “give a précis of his cross examination to the prosecution before

trial”). With this incredible insight into the defense’s cross-examination strategy, the

government could better structure its direct examination based upon what it learned

from the defense’s disclosures, tailor its choice of witnesses to avoid calling anyone

with direct knowledge of the information contained in the defense exhibits, and

prepare witnesses for questions likely to be posed by defense counsel. Cf. Lee v.

Illinois, 476 U.S. 530, 540 (1986) (noting that cross-examination is a “functional,” not

merely “symbolic,” right “that promotes reliability in criminal trials”).

This case provided a stark example of how the Ninth Circuit’s new rule plays

out during trial. The prosecutor’s witness list identified numerous broker–dealers

and third-party due-diligence investigators.

AER 653–57.

But after receiving

Petitioners’ cross-examination exhibits, the prosecution chose not to call a single

broker–dealer or due-diligence investigator with first-hand knowledge of the actual

disclosures made by DBSI to the broker–dealer community.

Similarly, the

prosecution disclosed that it would call Josh Hoffman, the DBSI employee who

directly interacted with the broker–dealers and their investigators. But, again, after

receiving the cross-examination exhibits, the prosecution chose not to question

Hoffman on his interactions with broker–dealers and even went so far as to seek a

court order prohibiting the defense from asking about these interactions unless the

defense called him as a witness. JER 7056–57. This is the strategic advantage the

Cerro court identified as unconstitutional. See Cerro, 775 F.2d at 915.

Since the district court’s order below, numerous district courts around the

country have grappled with this exact issue and a split among district courts has

developed. See Ellison Petition, Reasons for Granting the Petition, Section III.2. The

rule adopted by the Ninth Circuit and, increasingly, by district courts across the

country, disfigures the plain language of Rule 16 and undermines key Fifth and Sixth

Amendment protections. This Court’s review is necessary to provide guidance on this

issue of exceptional importance in the everyday functioning of criminal prosecutions.

Federal Rule of Evidence 801(c) Should Apply Equally to Defendants

and the Government—Defense Evidence that Consists of Verbal Acts

or Proves Mental State Should be Admitted.

At trial, Petitioners moved to introduce an email from Mark Ellison that both

negated the intent required for the charged crimes and carried independent

significance as a verbal act.

DLSER 36.

These statements were incorrectly

categorized as hearsay by both the district court and the Ninth Circuit. JER 6333,

6371; Pet. 19a–20a. The Ninth Circuit’s ruling conflicts with those of other circuits

in two respects. First, other circuits have made clear that statements contradicting

the existence of a conspiracy are not hearsay, but verbal acts carrying independent

significance. Second, other circuits hold that statements negating the charged state

of mind are not hearsay, as they are not offered for the truth of the matter asserted.

Had Douglas Swenson been tried in one of these other jurisdictions, the jury would

have been able to consider his direction to DBSI’s chief counsel to increase

disclosures, which directly contradicted the required intent to defraud and the

government’s theory of the case. The correct and uniform interpretation of Rule

801(c) is an issue of crucial importance and many times can mean the difference

between a conviction and an acquittal. This Court should intervene to settle this

disputed and important question of federal law.

The Ninth Circuit’s Decision Conflicts with Other Circuits

Applying Rule 801(c) to Evidence Offered by the Defense.

Other Circuits Have Applied Rule 801(c) to Verbal Acts

Submitted by Defendants.

It is well-settled that a defendant’s out-of-court statements to a co-conspirator

are not hearsay under Rule 801(c), so long as the government is introducing those

statements to prove the existence or scope of a conspiracy. See, e.g., United States v.

Childs, 539 F.3d 552, 559 (6th Cir. 2008); United States v. Faulkner, 439 F.3d 1221,

1226 (10th Cir. 2006) (explaining “verbal acts” doctrine and noting that statements

“directing the conduct of a fellow conspirator or agreeing to follow directions” are not

hearsay); United States v. Clarke, 24 F.3d 257, 267 (D.C. Cir. 1994) (concurring that

co-conspirator’s side of the telephone conversations were “verbal acts” not offered to

prove the truth of the matter asserted but were rather evidence of the conspiracy

itself); United States v. Lim, 984 F.2d 331, 336 (9th Cir. 1993) (holding that witness

testimony about what co-conspirators said was admissible to prove their verbal acts

in saying it); United States v. Tuchow, 768 F.2d 855, 868 (7th Cir. 1985); United States

v. Stratton, 779 F.2d 820, 830 (2d Cir. 1985);United States v. Boyd, 566 F.2d 929, 936

(5th Cir. 1978); United States v. Martorano, 561 F.2d 406, 407 (1st Cir. 1977). The

theory behind this rule is that statements in furtherance of a conspiracy are verbal

acts, i.e., acts with independent legal significance, and are therefore categorically

outside the definition of hearsay. See, e.g., United States v. Murphy, 193 F.3d 1, 5

(1st Cir. 1999) (“Verbal acts are simply one example among many of out-of-court

statements offered for something other than their truth.”).

Because the

establishment of the conspiracy affects the legal rights of the parties, namely, their

liability for the commission of a crime, the words have independent legal

significance.7

It is less well-settled whether a defendant’s statements that amount to verbal

acts—including statements that establish a lack of conspiracy—fall outside the

definition of hearsay under Rule 801(c). Following the logic of the cases discussed

above, the Eleventh, Sixth, and Seventh Circuits have held that evidence offered by

defendants to disprove a conspiracy (like verbal acts evidence offered to prove a

conspiracy) is not hearsay. See United States v. Mateos, 623 F.3d 1350, 1364 (11th

Cir. 2010) (holding that a video recording of co-defendants’ statements that there was

no fraudulent conduct was not hearsay because it was offered to prove that defendant

was not part of the conspiracy, and not for truth of statement); United States v.

Benton, 852 F.2d 1456, 1468 (6th Cir. 1988) (holding evidence that tended “to show

whether or not [an alleged co-conspirator] and [the appellant] were close enough to

be engaged in a conspiracy or to disprove the fact that there was a conspiracy” was

not hearsay); United States v. Jackson, 780 F.2d 1305, 1307 (7th Cir. 1986)

(disallowing admission of exculpatory statement to former co-conspirator because

defendants could have reasonably suspected co-conspirator was an informant and

were “covering their tracks,” but suggesting a different result would be appropriate

7 While these statements could usually be introduced under Rule 801(d)(2)(E) as well, these cases teach

that verbal acts are not hearsay at all, because they do not meet the definition of Rule 801(c). For

example, in United States v. Mateos, 623 F.3d 1350, 1364 (11th Cir. 2010), the Eleventh Circuit held

that the trial court erred by considering only Rule 801(d)(2)(E), because “[i]f the statement is not

hearsay in the first place, there is no need for it to fit within an exception to the rule against hearsay.”

if defendants “had continued to view [person to whom statements were made] solely

as a ‘co-conspirator’”).

In this case, Petitioners moved to introduce an email from Mr. Ellison that

demonstrated a lack of agreement by Mr. Ellison and Douglas Swenson to defraud

investors. Had Douglas Swenson been tried in Atlanta or Detroit or Milwaukee, the

jury would have been able to consider the entire email reflecting his direction to his

chief counsel, Mr. Ellison, to increase disclosures and their agreement to include more

disclosures in the investor materials, directly contradicting the government’s theory

of the case.8

But the Ninth Circuit instead categorized Mr. Ellison’s email as hearsay and

affirmed the district court’s holding that the agreement between Douglas Swenson

and Mr. Ellison to make greater disclosures was hearsay and could not be introduced

to disprove the conspiracy.9 The Ninth Circuit’s decision conflicts with other circuits,

which have recognized that defendants are free to submit verbal acts evidence and

evidence negating the existence of a conspiracy.

8 Mr. Ellison’s reporting of Douglas Swenson’s agreement falls within the verbal act exclusion because

it is a statement affecting “the legal rights of the parties or is a circumstance bearing on conduct

affecting their rights.” Fed. R. Evid. 801(c) advisory committee’s note (emphasis added). Mr. Ellison’s

understanding of Douglas Swenson’s shared intent to buttress disclosures was relevant “to show the

information on which [Mr. Ellison] acted,” and therefore is not hearsay. Emich Motors Corp. v. Gen.

Motors Corp., 181 F.2d 70, 82 (7th Cir. 1950), rev’d on other grounds, 340 U.S. 558 (1951).

9 The Ninth Circuit’s holding is in line with other Ninth Circuit precedent considering exculpatory

statements by the defendant. See, e.g., United States v. Ortega, 203 F.3d 675, 682 (9th Cir. 2000) (“If

the district court were to have ruled in his favor, Ortega would have been able to place his exculpatory

statements before the jury without subjecting [himself] to cross-examination, precisely what the

hearsay rule forbids.” (internal quotation marks omitted) (alteration in original)); United States v.

Gomez, 772 F. Supp. 2d 1185, 1197 (C.D. Cal. 2011) (citing Ortega and refusing to allow defendant to

admit evidence of mental state to negate intent because it would have been exculpatory and the

defendant did not testify).

If statements evidencing a conspiracy are verbal acts because they affect the

rights of the parties, namely their liability for the charge of conspiracy, then

statements negating a conspiracy should necessarily also be considered verbal acts.

In both cases—whether the statements support a conspiracy or negate it—the

statements affect the legal rights of the parties. This Court should resolve the tension

between these holdings by ruling that Rule 801(c) applies equally to defendants

moving to admit exculpatory verbal acts evidence.

Other Circuits Have Applied Rule 801(c) to Statements

Demonstrating a Defendant’s State of Mind.

The Ninth Circuit similarly departed from its sister circuits in holding that the

Ellison email was hearsay, notwithstanding that it was proffered by the defense to

negate the mental state required by the charge.

Most circuits hold that under

Rule 801(c), evidence presented by the defense to show a defendant’s state of mind is

not offered for the truth of the matter asserted, and therefore is not hearsay. See, e.g.,

Mateos, 623 F.3d at 1364 (allowing defendant to introduce statements showing no

knowledge of fraud); United States v. Hayes, 369 F.3d 564, 568 (D.C. Cir. 2004)

;allowing defendant to present his own out-of-court statement that he told alleged co-

conspirator to “tell the truth” as non-hearsay evidence negating specific intent to

sustain conspiracy and theft charges); United States v. Puzzo, 928 F.2d 1356, 1365

(2d Cir. 1991) (allowing conversations proffered by defendant into evidence because

they bore on defendant’s state of mind); United States v. Cantu, 876 F.2d 1134, 1137

(5th Cir. 1989) (allowing defendant to present statements to show state of mind for

entrapment defense); United States v. Harris, 733 F.2d 994, 1004–05 (2d Cir. 1984)

(allowing statements proffered by defendant to show his knowledge of other party’s

cooperation with the government); United States v. Leake, 642 F.2d 715, 720 (4th Cir.

1981) (allowing defendant to introduce statements negating specific intent to

defraud). While an exception to the hearsay rule exists for some contemporaneous

statements of mind, see Rule 803(3), these courts hold that such statements are not

hearsay at all, under Rule 801(c), because they are offered to show the defendants

lacked the mental state required by the crime. See, e.g., Harris, 733 F.2d at 1004

(“These statements were admissible, not for their truth, but instead as circumstantial

evidence of Harris’s state of mind—his knowledge of Steward’s cooperation.”); Leake,

642 F.2d at 720 & n.6 (holding that statement was non-hearsay because it was

circumstantial evidence of the defendant’s state of mind, and would have been

evidence that he did not have the specific intent necessary to aid and abet an illegal

payment).

Here, as the district court and the government conceded, the Ellison email was

admissible evidence of his state of mind. By the same token, the fact that Mr. Ellison

knew this intent was shared by the company’s chief executive and the fact that he

and Douglas Swenson applied this intent by working together to increase disclosures

should have been considered non-hearsay evidence of their shared state of mind. See

United States v. Ibisevic, 675 F.3d 342, 350 (4th Cir. 2012) (holding that defendant’s

statement to his mother, in Bosnian, of what customs agents had asked him was not

hearsay because it was not offered to prove what the agents had actually asked, but

only what defendant believed they had asked, a belief that went directly to

defendant’s “intent [to lie, which] was the central question in the case”); United States

v. Parry, 649 F.2d 292, 294–95 (5th Cir. Unit B June 1981) (holding that defendant’s

statement to his mother that he had spoken with a narcotics agent was “simply

outside the scope of the hearsay prohibition” because it was offered “as the basis for

a circumstantial inference by the jury that . . . [the defendant] probably knew of the

agent’s identity”). The Ninth Circuit departed from the view of other circuits that

state of mind evidence is non-hearsay, whether it is proffered by the defendant or the

government, and this Court should weigh in to correct the error and bring uniformity

to Rule 801(c).

The Proper Interpretation of Rule 801(c) When Defendants

Offer Non-Hearsay Evidence is an Issue of Great Importance in

This and Many Criminal Cases.

The proper application of the hearsay rule can mean the difference for a

defendant between a conviction and an acquittal. “Biased evidence rules, those that

permit one party to use a kind or class of evidence while prohibiting the other from

using it, give adversaries unequal weapons.” Randolph N. Jonakait, Biased Evidence

Rules: A Framework for Judicial Analysis and Reform, 1992 UTAH L. REV. 67, 67

(1992); id. at 73;“Provisions purposely advantaging the prosecution conflict with the

basic constitutional values that protect criminal defendants.”). In other contexts,

commentators have recognized the inherent dangers in allowing the government

more latitude than the defense. See, e.g., Jared M. Kelson, Government Admissions

and Federal Rule of Evidence 801(d)(2), 103 VA. L. REV. 355, 396 (2017) (discussing

unfairness of excluding government admissions as hearsay while allowing

government introduction of defendant’s statements); Steven R. Morrison, Requiring

Proof of Conspiratorial Dangerousness, 88 TUL. L. REV. 483, 504 (2014) (reporting

that 62.8% of prosecutors brought conspiracy charges in order to obtain evidentiary

advantages); Gordon Van Kessel, Hearsay Hazards in the American Criminal Trial:

An Adversary-Oriented Approach, 49 HASTINGS L.J. 477 (1998) (calling for

examination of hearsay rules); see also Christopher B. Mueller, Post-Modern Hearsay

Reform: The Importance of Complexity, 76 MINN. L. REV. 367 (1992) (arguing that

hearsay rules should be reformed to allow more statements before the jury). The

correction of evidentiary rules that are either facially biased or, as here, are applied

in a biased manner, is an issue of great importance.

Moreover, correct application of Rule 801(c) in this situation—where the

defense offered direct evidence going to state of mind—is crucial. Direct evidence of

a defendant’s mental state at the time of the alleged offense is rare.

Contemporaneous evidence of the defendant’s mental state, therefore, is many times

the crucial evidence in a case, and the difference between a wrongful conviction and

an acquittal. In many cases, the government may introduce any and all evidence that

damages the defendant through the co-conspirator exception to the hearsay rule, but

defendants are hamstrung from providing similar types of evidence in their defense.

It is even more important in cases such as this, where the jury is tasked with

determining whether the defendants are criminals with the intent to defraud, or

merely bad businessmen who made unfortunate, but not criminal decisions. An

unwise business decision alone is not a criminal offense; forbidding the defendant

from providing this type of evidence, while allowing the government to do so, gravely

increases the risk the jury will convict an innocent defendant.

The Ninth Circuit’s erroneous ruling prevented Douglas Swenson from

introducing highly probative, direct evidence of his actions in seeking to increase

disclosures and his innocent state of mind. The evidence’s centrality, combined with

the closeness of the case, the multiple acquittals, and the government’s

circumstantial mens rea evidence, makes this evidence incredibly important and its

exclusion harmful. Had Douglas Swenson been able to introduce this evidence, which

showed his good faith, in sharp contrast to the mental state required by all counts of

which he was convicted, the jury likely would have acquitted.

Douglas Swenson

would have gotten the correct verdict: acquittals on all counts.

This Court should accept review to correct the error and to bring uniformity to

the application of Rule 801(c), both throughout the circuits, and as between the

government and defendants.

CONCLUSION

The petition for a writ of certiorari should be granted.

Respectfully submitted,

____________________________________

Angelo J. Calfo

CALFO EAKES & OSTROVSKY PLLC

CJA-Appointed Attorney for Petitioner

1301 Second Avenue, Suite 2800

Seattle, WA 98101

Telephone:

206-407-2200

Fax:

206-407-2224

Email:

angeloc@calfoeakes.com

ATTORNEY FOR PETITIONER

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.